Atlanta Multi-Family
Atlanta's multifamily market received some relief starting in mid-2023, but challenging macro conditions and the overhang of new supply still present headwinds. The area had three quarters of positive absorption to end 2023, after flat to negative demand in 2022. The highest-end properties accounted for all positive absorption, however, and absorption in low- to moderate-income properties remained negative, as inflationary pressures continue to limit household formation among this cost-constrained cohort. Despite positive absorption, vacancy rates continued to rise in high-end properties, too, as near record levels of construction began to deliver. Multifamily vacancy in Atlanta has rose rapidly in the past few years, soaring from 6.1% in 2021 to the current rate of 11.8%. This shift has also softened area rent, Atlanta multifamily asking rents are down by-2.7% year over year, the worst decline among large regions.
More than three-quarters of the 30,000 units under construction are 4 & 5 Star properties, and the new competition is putting downward pressure on rents, especially in urban submarkets such as Midtown. Rents are down -2.7% across the market, with steeper declines of over 5% in Buckhead and West Midtown. The resumption of student loan repayment beginning in 23Q4 could add downward demand pressures among the young professionals most likely to lease in these trendy areas.
Owner/operators of Atlanta's 1 & 2 Star communities are still seeing slight positive gains despite recent negative absorption, as limited new supply deliveries have kept vacancies relatively low. But they are concerned with the area's growing backlog of evictions, especially in Fulton County, where cases are averaging over 10 months to complete.
Multifamily investors have been active in Atlanta, which ranks among the top markets for apartment investment over the past year. Even so, total sales volume has declined significantly since rising interest rates began complicating the lending picture. Transaction activity in 2023 decreased by about 70% compared to 2022.
The rise in interest rates and decelerating rent growth are behind the investment slowdown. Transaction cap rates have increased by about 150 basis points over the past year, as investors seek stronger going-in yields, while sellers remain reluctant to capitulate. Still, major institutional investors remain confident in Atlanta's long-term potential for population growth, job growth, and subsequent multifamily demand. And deals involving the newest properties continue to close, even in the highest-end submarkets that have seen negative rent growth recently
